Reagan 1981-89 and Reaganomics

Question 1

Inherited problems

Answer 1

• By 1980, the world recession was biting deeply, bringing factory closures, rising unemployment (to 7.5 percent) and oil shortages.
• Inflation had risen to nearly 15 percent and budget deficits remained high.

Question 2

Reaganomics

Answer 2

• Reagan’s economic policies, based on the works of economist Arthur Laffer who argued that cutting taxes for businesses and the wealthier quarter of American citizens would encourage spending and pump more money into the economy as a whole.
• The money would then eventually “trickle down” or find its way down to the lower classes of Americans making everyone better off.
• Reagan reasoned that if this happened, the government could stop many of its social welfare programmes involving transfers of payments to the poor.

Question 3

Measures

Answer 3

• He cut welfare programme spending by over $20 billion a year in his first 3 years, including food stamp programmes and programmes to assist struggling mothers and children.
• Economic Recovery Tax Act 1981: Reduced taxes by $33 billion making it the largest tax cut in US history – but to a point where the government was barely collecting any income.
• Increased total government spending, particularly in areas of defence which nearly doubled between 1981 and 1987.

Question 4

Effect of Reaganomics

Answer 4

• The government was forced to borrow money each year and the national debt rose to its highest ever level at nearly $1 trillion.
• In 1987 Congress, increasingly worried by the rapidly growing federal budget deficit, rejected Reagan’s budget for increased defence spending.
• There was a severe stock market crash in 1987, one of the worst since 1929 and the economy was beginning to slow down as industry moved into the recession.
• USA had the largest trading deficit of any of the leading industrialised nations.

Question 5

Space program

Answer 5

• 1986 was a disastrous year for America’s space programme.
• In January the space shuttle Challenger exploded only seconds after lift-off, killing all seven crew members.
• In April a Titan rocket, carrying secret military equipment, exploded immediately after lift off.
• In May a Delta rocket failed.
• The development of the “Star Wars” programme had proved very expensive and further drained the economy.